Richard Canfield explains how paid-up additions (PUAs) on whole life insurance policies can compound cash value and death benefits over time. A $500,000 base policy plus $25,000 in PUAs grows to $525,000, and reinvesting dividends as PUAs instead of taking cash creates a multiplier effect that increases future returns.
Questions this video answers
Endowment age 100 in Canada; 121 in the United States (unless an older contract specifies otherwise).
Base death benefit $500,000; paid-up addition $25,000 (new total $525,000).
150 million of net income; 75 million distributed as dividends; example split: 5 million paid in cash, 5 million left on deposit, 65 million elected as paid-up additions.
Chapters
They are required to grow that asset every single day that you're alive until such a point as the policy matures. The maturity date, it's really in how you interact with it. That I think is the difference. Some might say that's the secret sauce. They owe me that at some point.
In time they're not going to let it sit still. They're going to put the capital to work.
Only one group of people get the benefit of that return participating orders. So we've covered three of the five elements. The next one on our list we've mentioned several times is paid up addition. So those of you practicing this concept, read Nelson's book, read some of our books. We've got a couple of them. By the way. You can go to don'tspread wealth.com or grow your own capital.com. you can get a couple right there. You can go to cashfollows.com that's another good one. So we have a lot of great books where we talk about this. In fact, cashfalls.com we actually really dig into this. We have an image kind of talking through the impact of growing paid up additions. Right? That's, you know, if you wanted to put a secret sauce onto this, this tool called participating life insurance, some might say that's the secret sauce, but it's really in how you interact with it that I think is the difference. So paid up additions are exactly that. It's a paid up meaning it's a one time payment and then it's completely paid for addition. We're stacking on an addition to the base policy. So you have a base policy. Let's just say it's $500,000. You have a paid up addition. It adds $25,000 of death benefit. Your new total death benefit is 525. It's like you've added a floor on the property and now you have a new floor and then each year you're raising the floor up. Each time it's like you're building a skyscraper. And every time that you add a layer on there on one of these extra floors or a LEGO block that you're stacking on top. You're now locking in by contract the insurance company to an increased amount of death benefit. They have a contractual element with you as the policy owner that they are required to to grow the cash value, which is your asset that you own. They are required to grow that asset every single day that you're alive until such a point as the policy matures, the maturity date. So that would be the endowment date of 100 in Canada and it could be 121 in the States. Unless you have an older contract, it might be a different, might still be at 100. So whatever the contract states, that's when that cash value must grow to equal that amount. And so every time you stack one on, not only are you increasing your dividend potential, you're also automatically locking in a future cash flow. How would you like to see a 91 year case study that we put together to explain how this infinite banking thing can work for a family over two generations? Well, you know what, real easy to do that. We have that right in our second book, Cash Follows the Leader. You can get a copy for free delivered right to your inbox head. Head on over to cash follows.com that's cash follows.com and pick up a copy right now. So if I added a, I have a $500,000 death benefit and in year one I had $25,000 of paid up insurance. I'm now created a $25,000 IOU with the insurance company. They owe me that $25,000 if I die immediately to my family or they owe it to me in an acute accumulated cash bucket that they're required to grow. Either way, they're on the hook. I'm holding the iou. They owe me that at some point in time.
And to expand on what you just said, if you go back to the the figure that I shared earlier, 150 million of net income, 75 million is distributed in the form of dividends. And let's assume for a moment that 5 million of that 75 was actually paid out in cash. So that's 5 million that has left the bank account of the insurance company and it has now been paid out to all these people that elected to receive it in cash. And let's say that there's another 5 million that was left on deposit and now we've got 65 million where the election was paid up additions, that's 65 less million dollars that are not leaving the life insurance company's money pool. What is the insurance company going to do with that money? They're not going to let it sit still. They're going to put the capital to work. So all the advantages of paid up additions that Rich just described, the other massive benefit is that the actual cash, the actual portion of that net income that never went anywhere is being redeployed to go and earn more return on that invested capital.
And only, only one group of people get the benefit of that return participating owners. There's no one else who receives a benefit. Right.
So if we, you Rich and I, we own a company, we have $75 million that we've declared in dividends and you and I say we're just going to elect to roll that right back in to the business. Pretty smart decision on our part because now we've got all that much more capital earning a return on capital. So the very next year we sit down and go, wow, we did pretty good because we generated a significant return on that capital that we didn't extract in the full form of cash and go and spend it.
Yeah, we generate a return on the business itself plus a return on the capital that we kept in the business. Right Click here for the next amazing video and if you want check the links down below and you can get access to a free book that we've written right to your inbox. Go ahead, do that now.
